Month: July 2017

As the investing population skews towards millennials, socially conscious investing is outgrowing its past as a niche market. To capture the loyalty of tomorrow’s investors, financial institutions should think beyond risk profiles by constructing portfolios based on their clients’ beliefs.

Investors often design their portfolio around a “risk profile,” generated by their age, income, acceptable level of volatility and long-term goals. Thinking back to microeconomics, we know that individuals get different, though ambiguous, levels of utility from the different choices they make. For a growing number of investors, returns are important, but so is having a portfolio that lines up with their beliefs. For example, if I care deeply about the environment, and my wealth manager allocates half of my portfolio to a coal company, I won’t be happy, no matter how big a return I get. If we expand this concept to all of the broad ethical concerns one can have, it follows logically that personal interests and beliefs ought to be given more consideration when determining a proper portfolio. While today’s “socially responsible” investing is quite niche, and still focused on environmental sustainability, it’s becoming more customary for investors to buy what they believe in.

As wealth management fintech firms evolve, a client’s ‘belief profile’ will take an equal seat next to his or her risk profile (Stash, imaged above, is a great example of this). While a risk profile is essentially confined to a scale from risk averse to risk hungry, a belief profile is multidimensional, using clients’ stances on as many issues as they choose to weigh in on. A client’s ‘belief profile’ could consider environmental concerns, foreign policy, gender, and even religion, enabling one’s portfolio to more closely reflect oneself. With an estimated 84% of the millennial generation interested in sustainable investing, the more accurately a manager can construct a portfolio that resonates with an investor’s beliefs, the more assets they can expect to pull in. This is precisely why giants like Blackrock and Goldman Sachs have started to offer more sustainability-concerned mutual funds and ETFs in the past few years.

Sustainable funds are certainly not a new concept. Take Calvert, which was founded in 1976 and launched the first socially responsible mutual fund. Calvert’s fund excluded companies that did business in apartheid-era South Africa. Today, Calvert offers 26 different funds. What’s sparking the reinvigorated interest in this space seems to be a combination of Millennials’ belief-driven preferences being given more weight, along with more and more companies taking an interest in sustainability. Some of the most sustainable companies (certified as such) are benefit corporations, a.k.a. B-Corps. There are over 2,000 B-Corps, including some large publically traded companies, such as Etsy (ETSY; NASDAQ) and Natura (NATU3; BVMF).

Robo advisors can play a key role in the taking the “belief-profile” to mainstream investing. With more precise technological capabilities, robo-advisors can quickly and simultaneously adapt to their client’s needs and the current state of the markets. New institutions, like Swell, provide research on publicly traded companies who stand to grow, based on social and environmental trends. It may be easy enough to say “I don’t care about _____”, but it’s hard to ignore socially conscious investments that outperform their benchmark indices. For example, since 1990, the MSCI KLD 400 Social Index has returned an average of 8.4% a year, compared to the S&P 500 index’s 7.6%.

The MSCI KLD started with the name “Domini 400 Social Index” or “DSI”

Any financial marketer can tell you that Millennials expect “personalized experiences.” Building a strategy around a client’s “belief profile” will help wealth managers deliver just that, all while making them feel good about putting their money behind their values.

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What’s the #1 source for fast, accurate information? Google. With a culture of transparency and unparalleled data management capabilities, Google is positioned to help wealth managers engage clients by delivering the highest level of insight into their investments. With rumors circulating of a Google Wealth product, today’s financial institutions should act fast in embracing Google’s platform.

In a 2015 FactSet survey, high net worth individuals (HNWIs) were most excited about a wealth management offering from Google, citing their need for more frequent and in-depth insights into their portfolios. A UBS analyst famously used Google satellite images of parking lots to predict Walmart’s revenue. Google analytics can predict unemployment claims before the government finishes counting them. While Google Finance failed to gain traction from Yahoo! Finance, Google has improved the results of stock-market searches by pulling the charts, quotes, and news onto their main search result pages.

Google has danced around the more profitable parts of finance for one reason: Regulation. While Google may have an aversion to the regulated parts of finance, it can still become a major player in finance by leveraging its strength as a preferred platform, its trusted brand, and proven ability to store information securely.

Google still makes 86% of its revenue from unregulated online advertising. Aside from its moonshot projects, its other products are mostly tools to gather behavioral insights that, in the end, further boost their ad business. Here are some of Google’s products that could prove to be a gateway for financial institutions:

Storage:

Google has not been shy about its ambitions in cloud computing. In fact, it has already made the Google Drive a passport platform for healthcare documents, see: How Google G Suite Helps Keep Your Hospital HIPAA Compliant. Google holds 27% of the market share for cloud storage, second only to Dropbox, with 47%.

The Google Drive would be an ideal place to bring together financial institutions and their clients – Google could allow financial institutions to create Google Drive Folders with securely stored client information, and allow the client to set up the PFM and wealth management tools they most desire, talk about personalized. To take it one step further, Google could leverage its platform to help clients control which third-party tools have access to their account information. This would position Google as a client-oriented provider, and help them ease sour relations within the EU – where PSD2 requirements are hanging over financial institutions.

Trusted Brand Offers & Engagement:

Currently, Google’s financial ads take you outside of their platform to the advertiser’s site. What if they internalized this process by embedding offers, and actions, for trusted brands? In this scenario, Google users could create, fund and manage financial accounts all from Google’s secure, familiar platform. Consumers crave frictionless finance and already trust Google. Why force a user to navigate away, when you can bring these offers into the Google platform? This would boost Google’s user engagement, make it easier for financial institutions to onboard clients, and delight users with a smoother customer journey.

Gmail:

For individuals, Gmail is the email provider of choice with around 50% market share. However, cloud-based email is still in its infancy for larger companies; a recent Gartner study found that only 8.5% use cloud email from Microsoft, and a mere 4.7% use Google Apps for Work. The remaining 87% have on-premises, hybrid, hosted or private cloud email managed by smaller vendors. Most financial institutions are not using Gmail internally, but they should not underestimate Gmail’s potential for communicating with their clients.

Rather than serving as a gateway back to your financial institution’s website, Gmail could become a trusted platform for sharing secure information, proxy voting (which 72% of retail investors abstain from today), supporting customers on Gchat, and more.

Financial services emails today get a dismal 2.7% click-through rate. This weak communication channel could be displaced by an in-app messaging system that reduces friction and increases engagement with Gmail users – of which there are now over 1 billion worldwide.

We have explored 3 possible paths for Google to enter financial services, and there are infinitely many ways it could play out. We welcome you to leave comments to share your predictions for Google’s entry into Finance.

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This spring, at TechCrunch Disrupt Asia, a leading VC called Amazon the next biggest FinTech company. In this post, we explore the opportunities for Amazon to enter Financial Services – and how today’s Financial Institutions can leverage the Amazon platform to engage tomorrow’s investors.

Ant, the creator of Alipay, acquired MoneyGram for over $1BN in cash and entered the Spanish payments market through a partnership with Santander. Ant’s “leftover change” product, Yu’e Bao, took in over $165BN in under 4 years, becoming the largest money market fund in the world. It yields 3.93% on consumers’ spare change, a significant increase on traditional Chinese banks’ funds.

Amazon is as ambitious as Alibaba, from books to food, music to movies, AI & AWS, and most recently, messaging. Last year, Amazon filed over 566 patents; this year, it has averaged 32/month so far. The top categories were computing and electronic communication, while their most active Trademark filings are 97 for advertising and 88 for scientific. A bit more digging yields filings for Trademarks on things like “Amazon Coin” which could be a Bitcoin-like cryptocurrency or an internal payment system. Amazon’s wide-ranging patent portfolio indicates they are eyeing multiple opportunities in finance.

How would “Amazon Finance” play out? We see a few paths:

Mirror Alibaba:

Amazon could accelerate their move into finance by gobbling up PayPal or Square. A PayPal acquisition would give Amazon social media assets in Venmo and a strong footprint in global payment systems. PayPal’s origins as a P2P payment system aligns with Amazon’s platform and position as an e-commerce marketplace. Paypal has also remained relatively nimble by avoiding the most cumbersome regulations that slow down other financial institutions, making the company an attractive acquisition target, given Amazon’s culture of “trimming the fat” to maximize efficiency.

Platform Play:

Growth in Amazon’s non-core business lines is often overlooked, but their Trademark filings convey continued ambition across verticals. Amazon could easily become a marketplace platform for a range of financial services from investment accounts to credit cards. Amazon could build the systems for financial firms to open accounts, enable customers to manage the accounts and interact on Amazon. Over 70% of digital natives would trust Amazon more than a bank site, so why not bring them into the Amazon Tent? This would allow financial firms to leverage the Amazon platform to engage customers, without the regulatory hassle. The “Platform” angle would give Amazon the “kingmaker” role with Financial Service firms. The “Platform” play gives them another service to put onto their new messaging service “Anytime,” following in the footsteps of Alibaba’s chief rival WeChat.

Alt Currency:

An already trademarked ‘Amazon Coin,’ the name of which currently only used for game and app purchases, could be a bold yet logical entrant to the booming Cryptocurrency market. Amazon already does $135BN in annual revenue. Combined with their ability to leverage their reputation for security, Amazon is a natural market maker, the middleman for vendors, suppliers, sellers, and customers. Increasingly positioned as a central pass-through for all things commerce, Amazon launching its own cryptocurrency would keep customers sticky to their platform and boost their bottom line.

Amazon has trodden lightly thus far with its financial services offering, but we don’t expect their idleness to last for much longer. While we present Mirror, Platform, and Alt Currency as 3 potential paths, there are certainly many more paths that Amazon could take. What do YOU think Amazon’s next move will be? Send us your thoughts.

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No one is denying that the FinTech space is ripe with innovation. What most fail to realize though, is that mainstream media outlets tend to report on us with a survivor bias. If you look around, you may have noticed quite a few FinTech companies are going under (click here to see a piece by Benzinga that includes a slew of failed companies).

While VC funding is often cyclical, there are still many unicorns in existence. Despite not being household names, Square had a successful IPO, and Stripe, Transferwise, and Addepar all received lofty valuations. In 2016 overall, FinTech companies received $36 billion in funding across from over 1700 unique investors.

While this was a $2bN decrease from 2015 funding, the growth cycle for FinTech companies is longer. Historically, the average time for IPO or Exit looks something like the chart below. The mass “buzz” factor tends to be quieter, and the sales cycle longer.

While we don’t deny the foundational shift against app-based ad-supported businesses, we also see big opportunities. As we deploy our SDK solution on more than 100 partner apps, these apps have seen a 3-4x boost in user engagement and awareness. This is a measurement of enabling financial institution customers to take actions on publisher apps, and these financial institutions are increasingly moving towards “action” based compensation. This is a systemic shift towards enabling technologies like ours to provide the basis for monthly recurring revenue (MRR) and action based incentives.

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If you’ve been on the internet in the last week, you’ve probably seen some mention of protecting “net neutrality.” While the term sounds self-explanatory, it’s more important than most realize. Net neutrality is the principle that Internet service providers (ISPs) and internet regulatory entities must treat all data on the Internet equally. It prohibits internet providers from charging differently by user, content, website/application, or communication mode. John Oliver gave aspirited review of the issue. Essentially, without net neutrality, ISPs would be able to charge companies and consumers for preferred speed and access to certain sites.

Net Neutrality prevents a traffic hierarchy

In 2015, four million people petitioned the FCC to reclassify broadband ISPs to protect net neutrality. This public support was unprecedented, forcing the Commission to enact strong rules, called the Open Internet Order, in favor of a neutral internet. However, in the last couple of months, President Trump and the FCC Chairman, Ajit Pai, are looking to overturn the 2015 Net Neutrality win, despite the prevailing popularity of the rules across party lines: 77% percent of those surveyed still support the FCC’s rules. The only group pushing for a repeal is your friendly neighborhood ISPs, a.k.a. Big cable. It’s worth mentioning that ISPs aren’t exactly taking the outrage well,AT&T even tricked some customers into sending pre-written protest messages that actually are against net neutrality.

Luckily, the outcry has been successful. So far, there have been 4 million comments to the FCC, 2.5 million petition signatures, 10 million e-mails to Congress, and 500,000 calls to the FCC and Congress. With those numbers, we can see that many people out there care. However, continuing the dialogue about a free and open web is paramount for both consumers, big sites like Facebook and Google, and us here in the FinTech space.

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The biggest opportunity for Financial Institutions today is getting their product into Google, Amazon, and Facebook’s customer experiences.

72% of millennials would rather bank with Google, Facebook or Amazon than their existing financial institution. You have to wonder how long it will be before these tech giants launch their own financial products. Financial institutions already receive over 50% of their web visits from clients who pull their information onto other platforms; customers want their financial information everywhere, not just on their financial institution’s website.

Financial institutions have their own apps, but few are capturing eyeballs like the tech giants do. I encourage any financial executive to try the “Battery Usage” test: on your iPhone => settings =>battery => scroll down and look at which apps drained your battery for the last 24 hours & 7 days. We have yet to find anyone with a Financial Institution in the top 5.

Over the next 3 weeks, we will explore the potential of Financial Institutions bringing their customer journey into the experience of Google, Amazon, and Facebook. In each of these cases, we will discuss how these three companies can serve as safe, secure, trusted platforms for Financial Institutions to engage with their customers, breaking free from click-based advertising to action-based engagement. These social platforms continue to do what they do best, increase engagement, while the Financial Institutions reap the benefits for their clients.

PS: We’ve covered WeChat as an operating system here – we look west to learn the best practices, customer trends, and applicability for the US market.